America is going through some significant changes at the moment, and some of these factors are so large they have become “megatrends” – the name coined by John Naisbitt to acknowledge forces so large you have to be aligned with them to succeed. In this Self-Storage University podcast we’re going to review these new shifts and how to maneuver around them.
Episode 157: New Megatrends And New Challenges Transcript
Back in the 1980s, an author named John Naisbitt wrote a book called "Megatrends," in which he identified there were certain shifts in America that were so big, so broad, so powerful, you didn't dare try to swim upstream into them. You had to go with the flow. You had to get aligned with those megatrends. And of course, the megatrends have changed a lot since the 1980s. But nevertheless, none of us can argue with the fact when there are big seismic changes going on in America, it's a very, very bad idea to get on the wrong side of them. This is Frank Rolfe, the Self Storage University Podcast. We're going to talk about the changes in America, these big seismic shifts, and what you need to do to defend yourself against them and to get aligned with them properly.
So let's go over what some of these big, big shifts are. Number one is all of this political instability. It's the worst I've ever seen. I'm a baby boomer. Baby boomers are born between 1946 and 1964. They've seen a lot more cycles than younger people have. And what we've all noticed, if you're a baby boomer, is you've never seen things like this. We've never seen a huge part of America now pushing for the socialist agenda or even the communist agenda, but that's what's really going on.
So as a result, you have political instability to worry about like we've never, ever had before. So how do you defend yourself against political instability? Well, number one, clearly, you need to get your affairs in order. You need to make sure that you've got your estate properly planned. You may have to make sure your properties are in the form of LLCs. You may have different estate planning you can do. I would definitely get ahold of a lawyer if you can and just get everything set up, because we really don't know where things are heading.
There's so much litigation today. There's so much issues, people just hating each other like never before, and you've got to be ready for those kinds of problems. I would also, if you have any loans coming due anytime soon, you better grab those while you can, because who knows what happens. If things get more unstable, then it may be that some of the lenders pull in their hordes and say, "I won't make any loans anymore."
That's always an option. Trump has talked about privatizing some forms of lending. There's some changes going on in banking. I don't for a minute think that the banking of the future may be as good as the banking of right now. So if you have a loan that's coming up soon on your storage facility, I would go ahead and pull the trigger and get it done now while things are still relatively calm. Now, I know the interest rates are up, but I would much rather have a loan at a higher interest rate than no loan at all. So you might start thinking what you can do on that.
You can also become more politically connected. I think it's smart for people to get more politically connected, give contributions to politicians, perhaps in both parties, because when you need a politician, if you call them, if you contributed to their campaign, you get access. If you didn't, you often can't. Also, you need to buy properties that simply have a lot more EBITDA and a lot more cash flow. This is not a time, when things are getting weird, for you to pay a premium for properties. That has captured a lot of storage owners, and they're in a lot of trouble, and we'll be seeing a lot of distress on that front coming up in the future.
Another megatrend is I've not seen since the Civil War the states more divided. We truly are separated into blue and red, just like we were back in the Civil War, separated between blue and gray. So how do you hedge that? The simple fact that a lot of these blue states have become actuarial agencies for the DSA agenda and other all kinds of woke nonsense. Well, clearly one way to counterbalance that is to buy storage facilities only in red states and abandon those blue states simply because you don't trust them. You don't trust what they're going to do with their laws, what they're going to do with their attorney generals, of all this crazy stuff that they do.
Also, I would try and get non-recourse debt if you can. It's harder to get than recourse debt, for sure. Non-recourse is where they can't come after you in the event of a loss. But at times like this, where things are so strange between the states and the federal government and all these different items, I think having non-recourse debt is a very, very smart position.
And once again, buy deals that have a lot of fluff on them. Don't buy deals that are super skinny. People who bought self-storage facilities pretending that they were somehow bonds or CDs are in for a rude awakening because they're not. People who tried to promote that you can raise occupancy, you can't. Raise rents in most places, you can't. In a lot of cities today, rent and occupancy is declining for storage owners. So you can't be one of those people. You've got to find things that are so juicy that even in a politically divided America and a very unstable America, you can still win.
The final big megatrend that's going on, and this one is more powerful than any other, is simply that the population is changing in age. I'm a baby boomer, born between 1946 and 1964. And baby boomers are very proud of themselves because for the longest time, they were the largest lobby in America based on population size. They were two-thirds of the entire US population People wrote books about, "Hey, what are baby boomers doing? Where are they going? What are they wanting?" Because everyone catered to them because they were the 5,000-pound gorilla in the room when it came to products and services. You had to cater to baby boomers.
But the problem is the baby boomers have now fallen. They're no longer two-thirds of the US population. They're only one-third. That's a big shift. They are now a minority compared to younger people. Things like Gen Zs, millennials, all these people that we talked about, well, they have now grown to be the biggest. And as a result, you're going to have a lot of changes that you need to be aware of in the storage industry.
First one is your customers are going to be younger. They're also going to have fewer things to store. And in some markets, that's going to be crippling, simply because if people don't have things to store, they don't need you. They don't need your storage units. They're also not going to be held ransom when you raise the rate because they don't have many things in the storage unit.
You raise your rate, the guy down the street does it, well, they may just pack up their few items and move them on down there. Also, where are these young people located at? Well, young people who are affluent, people who have things to store, are going to be found in suburbs and exurbs. The outlying areas. They're no longer going to be found downtown in the big city.
Those people who are young in the big city downtown, they don't have anything to store. What are they going to store, a bicycle tire? They pay $100 a month to store a $50 bicycle tire? Or they could spend $100 to store a $50 Christmas tree that they could buy annually on Amazon and throw in the trash? You have to remember, the younger people see society more as disposable. They don't have a lot of assets. They don't feel there's value in the assets because they can always just go online and buy them for cheap in a moment.
So who really has the things to store the future? If America's going to get younger, who's going to be storing the stuff? Some would say, "Well, it's those boomers. As they get older, they're going to downsize and have to store their stuff." Well, I got news for you. Most of those people are dying off. That's how the population went from two-thirds down to one-third in the older category. That's not really thinking like the future.
The future looks to me like everything is pushing out. If you look at storage occupancies, where are the hot spots out there? Suburbs. Exurbs. Why is that? Because that's where younger people have gone. They cannot afford houses in the big city proper, so they drive farther out to get a better value. They also get lower crime and better schools. They'd be crazy not to do what they're doing. But a lot of storage owners have been caught with their pants down because they thought everything was about climate-controlled multi-story storage facilities in big cities that nobody cares about in the least.
Everyone wants that one-story roll-up door where they can pull their car right up to it and move goods in and out. They don't want to have to go to some crazy thing where you have to put a security code in to get in the door to get a two-wheeler to go out to your car to get da da da da.
That's not appealing to that market. So if you talk to people today who are doing well in self-storage, what do they have? They have the old generation one facilities out in the suburbs and the exurbs. What about the folks in the big city? They're doing terrible. Nothing but declining occupancy, nothing but declining rents. Will that continue on? Absolutely. It's a seismic shift. The change in population is not going away anytime soon. In fact, it's only going to get worse. That one-third boomers is soon going to be depleted down to an even smaller percent, and then eventually, decades from now, it's going to be all the way down to 0%.
The bottom line to it is you've got to be on top of these big changes. You have to watch them carefully. You have to plan accordingly. This is a time of major shakeout and shift in the storage industry, and those who are stuck in the past are truly stuck. This is Frank Rolfe, the "Self Storage University Podcast." We'll talk to everyone again soon.